Partners in progress: Mexico looks to the Pacific Rim to expand its economy

Redefining Mexico’s position in the world, notably by strengthening ties with the Asia-Pacific region, is one of the overarching goals of President Enrique Peña Nieto’s key structural reforms to transform the country into a modern, competitive economy. In order to increase its trade capacity in the region, Mexico became a party to the Trans-Pacific Partnership (TPP) in 2012, an ambitious regional free trade agreement agreed between 12 countries in North and South America and Asia, in October 2015. The TPP aims to liberalise trade in goods and services by reducing tariffs and other barriers in an effort to open markets, while also setting standards on a variety of issues related to trade and international competition.

Economic Muscle

The initial agreement was reached by Singapore, Chile, New Zealand and Brunei Darussalam in 2006. The signatories to the agreement involved in 2015 are, in order of economic size, the US, Japan, Canada, Australia, Mexico, Malaysia, Singapore, Chile, Peru, New Zealand, Vietnam and Brunei. These countries taken together account for nearly 40% of the global economy, making the TPP the largest economic treaty in history. Participants negotiated in a range of areas including agriculture, customs, industrial and textile products, financial services, mobility, investment, telecommunications, electronic commerce, environment, intellectual property rights, labour, sanitary measures, among others. In many cases, the rules are more rigorous and more far-reaching than those already established in the World Trade Organisation (WTO).

The TPP represents a major multilateral trade undertaking. It is the most significant trade deal for Mexico since it signed the North American Free Trade Agreement (NAFTA) with Canada and the US in 1993. Following a 17.5% average yearly rise in exports to the Asia-Pacific region between 2007 and 2012, Mexico formally joined the negotiations for the partnership in 2012. While a number of summaries and general outlines of the agreement have been provided, the full text has not yet been made public. Mexico’s participation in the TPP negotiations is in line with the objectives of the country’s national development plan, which include increasing its presence in the Asia-Pacific region to expand and deepen diplomatic and commercial relations with the member countries. A growth in trade drove Mexico’s application to join the negotiations. Mexican exports to Asia grew by 20.2% between 2005 and 2012, compared to an average growth of 8.2% at the global level over the same period. From 2000 to 2011, Mexican exports to the TPP countries grew by almost twice the rate of imports, with imports growing by 50% to reach $212m and exports rising by 92% to $292m.

Mexico Impact

The TPP represents an opportunity for Mexico to diversify its international trade and spur economic growth by expanding trade opportunities with member countries. The deal is expected to lead to the doubling of agricultural exports to Japan, a market which is currently relatively closed to Mexico. Authorities expect agricultural exports to Japan to reach some $2bn annually within five years of the agreement taking effect. In addition to agricultural products, the TPP is expected to facilitate a rise in exports of personal hygiene products and cosmetics to Japan, expected to reach an estimated $5bn. While preferential trading terms with Japan will be beneficial for Mexico, the TPP could put pressure on the country’s clothing and textiles industry due to the competitive advantage in the sector held by other participating countries such as Vietnam. Authorities also expect an increase in investment from TPP member countries which will spur growth in Mexico once the agreement enters fully into force.

While the TPP will facilitate the expansion of trade for the country by opening new markets in Asia, the government is also working to preserve Mexico’s trade privileges with the US, it’s largest trading partner, and maintain its preferential trade status established under NAFTA, deepening relations between the two states.

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